Netflix to deliver movies directly to TV

Streaming service is cornerstone of effort to retain customers

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DVD-by-mail service Netflix Inc. will begin delivering movies and other programming directly to televisions later this year through a set-top box that will pipe entertainment over a high-speed Internet connection.

SAN FRANCISCO — DVD-by-mail service Netflix Inc. will begin delivering movies and other programming directly to televisions later this year through a set-top box that will pipe entertainment over a high-speed Internet connection.

The set-top box, to be made by LG Electronics Inc. as part of a partnership announced late Wednesday, is designed to broaden the appeal of a year-old streaming service that Netflix provides to its 7 million subscribers at no additional charge.

LG Electronics didn't reveal how much the set-top box will cost when it hits the market in the summer or early autumn. Similar devices made by Apple Inc. and Vudu Inc. cost $299 to $399.

A bevy of other gadgets designed to bring more digital entertainment into living rooms is expected to be unveiled next week at a major consumer electronics show in Las Vegas.

Netflix's streaming service is the cornerstone of the Los Gatos-based company's strategy to retain and attract customers as technology makes it easier to rent and buy movies within a few minutes instead of waiting for them to be delivered through the mail.

Although Netflix says its subscribers have watched more than 10 million movies and TV episodes through its "Watch Instantly" option so far, the streaming service has been too constraining for many subscribers.

That's because all the streaming service's programming must be watched on a personal computer, unless the viewer knows how to link a high-speed Internet connection into a TV monitor.

The set-top box is supposed to serve as a bridge that will enable just about anyone with a high-speed Internet connection to plug in a few wires so they will be able to access Netflix's Watch Instantly feature on their TVs.

Subscribers will still need to use a computer to pick out which programs they're interested in streaming. The selections, culled from more than 6,000 titles available in streaming library, will then show up on the TV screen.

"It's going to be very slick and easy," said Reed Hastings, Netflix's chief executive officer. "We want the TV experience to be very relaxing and not like visiting a Web site."

Depending on which subscription plan they have, Netflix customers can watch anywhere from five to 48 hours of programming through the streaming service each month at no extra cost.

The LG Electronics alliance is just the first of several partnerships Netflix hopes to strike this year to extend its delivery options beyond the mail. Although he wouldn't provide specifics, Hastings listed video game consoles and high-definition DVD players as other potential channels for Netflix.

"We want to see 100 Netflix-capable devices on the market," Hastings said.

With more than 90,000 titles available in its DVD library, delivering movies through the mail is expected to remain Netflix's primary money maker for years to come.

Nevertheless, Netflix has spent about $40 million on the development of its streaming service during the past year.

The financial commitment hasn't been enough to convince many investors that Netflix will be able to survive a widely anticipated shift that that will turn DVDs into an afterthought as digital downloading proliferates.

The persisting worries are one of the biggest reasons that Netflix's stock price remains roughly 30 percent below its highs of nearly four years ago, even though the company has become more profitable while signing up millions of new subscribers since then. Netflix shares fell 27 cents Wednesday to finish at $26.35.

Netflix's growth tapered off last year amid tougher competition from Blockbuster Inc., but Blockbuster recently signaled it's backing off in the battle by raising the prices of several popular plans.

One of Netflix's most formidable threats yet may be looming just around the corner, with Apple reportedly preparing to launch an online movie rental service that is supposed to include titles from News Corp.'s Twentieth Century Fox and Walt Disney Co.

Apple so far hasn't commented on the reports, which have predicted a formal announcement will be made at the Cupertino-based company's Macworld conference later this month.

An online movie rental service could give more people a reason to buy Apple's device for delivering programming to TVs. The gadget, called Apple TV, so far hasn't taken off like the company's wildly popular iPod and iPhone. Piper Jaffray analyst Gene Munster estimates about 1.8 million Apple TV devices had been sold through 2007, but he expects another 2.9 million units to ship this year.

"If (Apple) does what has been reported, they will reach a very big market," Hastings said. "But the addition of Apple to the rental market isn't causing us to lose any sleep."

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